Last week, embattled chipmaker Qualcomm announced it had struck a new licensing deal with South Korean electronics corporation LG. As part of the new arrangement, the San Diego-based semiconductor firm will provide its partner with 3G, 4G, and 5G modems for the next five years.
The agreement comes at a critical time for both companies. LG needed 5G chips to compete with its rivals ahead of the fifth-generation roll out coming next year. Conversely, Qualcomm will receive a much-needed fourth-quarter cash injection.
While the two parties didn’t disclose financial details on their new agreement, Qualcomm indicated the deal is similar to its other global licensing agreements. As per the pact, LG will use the chipmakers patents in its 3G, 4G, and 5G mobile devices. In May, the electronics manufacturer released its first 5G smartphone, the V50 5G, which is equipped with a Qualcomm Snapdragon 855 chipset.
The two companies previously had a long-term supply agreement in place but it lapsed in December 2018. Subsequently, Qualcomm and LG entered into an interim licensing deal that ran through June but then the firms hit a financial dispute.
In May, the Federal Trade Commission (FTC) won its antitrust lawsuit against Qualcomm. U.S. District Court Judge Lucy Koh found the manufacturer used its market dominance to charge its customers exorbitant royalty rates. Consequently, she ordered the firm to renegotiate its existing agreements to give its clients more favorable terms.
LG wanted Qualcomm to abide by the judge’s mandate and offer it more affordable licensing rights. But the semiconductor firm refused as it’s appealing the court’s decision. On Friday, the United States Court of Appeals for the Ninth Circuit ruled the corporation could delay changing its existing contracts while Judge Koh’s ruling is under review.
The appeals court intends to hold hearings regarding Qualcomm’s appeal in January.
Although Qualcomm is doing well now, its long-term prospects seem grim. While LG likely felt pressure to sign a contract in the face of the global 5G rollout, it might not want to renew its agreement with the chipmaker in 2024. It might continue the relationship if the court upholds Judge Koh’s ruling, but it’s unlikely the smartphone maker will re-enter what it believes is an unfair deal.
Furthermore, Qualcomm might face problems with Apple by the middle of the next decade. In April, the iPhone maker ended its long-standing legal disputes with its old chipset supplier with a $4.5 billion payout. Afterward, the two technology giants entered into a new five-year licensing agreement. However, in July, Apple bought Intel’s abandoned smartphone modem business, including its 5G assets.
Market analysts believe the Cupertino, California-based corporation did so to produce its own chipsets one day. By sourcing its motives in-house, Apple can cut Qualcomm out of its supply chain. Given the problems they had in 2018-19, LG may want to follow in the footsteps of its rival firm unveiled new artificial intelligence-enabled chips for its smart home products in May. Accordingly, the company might re-task its ability division to developing smartphone modems if it can’t get more favorable terms from Qualcomm.
As the semiconductor manufacturer has severely antagonized two of its biggest clients, Qualcomm future viability is an open question.